Joint Ventures

Joint ventures are a special category of partnership used to describe situations where two or more businesses agree to work on a project together with a view to achieving a better result than going it alone.

This is not a legal definition , and unlike the Companies Act 2006 or the Partnership Act 1890, there is no equivalent Joint Venture Act. Indeed, virtually any relationship where two or more parties agree to work or collaborate together could be described as a joint venture of sorts. So joint ventures can include:

  • Traditional business partnerships;
  • The appointment of an agent or distributor, to increase marketing and sales opportunities. For example, a successful business in England may want to replicate its success overseas but may need the assistance of ‘partners’ locally;
  • The licence of intellectual property, to facilitate an inventor’s idea being converted into selling products and commission payment;
  • The sharing of costs, know-how, assets and other resources to jointly make a project a reality;

Getting started on a Joint Venture

When commencing a joint venture the process should be similar to when commencing a business without the collaboration i.e. the joint venture should be supported with a robust business plan that can document the venture as being a viable investment.

We also recommend the more solemn side to the legalities are considered from the very beginning. So before any detailed discussions where ideas and know-how is exchanged a confidentiality agreement should be entered into. A joint venture solicitor will be able to advise on a suitable document.

Assuming, there is a hand shake in principle between the parties to move forward, then a memorandum of understanding or letter of interest may be a helpful start. This is a short document documenting which endeavours to blueprint the headline terms of the joint venture. Apart from certain aspects such as confidentiality, a memorandum of understand or letter of intent is not intended to be a legally binding agreement. Although preparing these documents can add an extra layer of cost, they are a helpful way of teasing out potential issues before commencing the work on the longer form more comprehensive joint venture documents.

Forming a Joint Venture

Joint Ventures may take a number of different legal forms from the creation of a new legal entity jointly owned and managed, or through an agreement to co-operate.

If a new legal entity is to be created then this is likely to be either:

  • The limited liability company or limited liability partnership
  • A general partnership subject to the Partnership Act 1890

However, there are a number of other more specialist vehicles that can be created depending on the type and location of the joint venture.

If the joint venture is to be setup on the basis of an agreement alone, the main motivating factor is likely to be independence i.e. the parties to the joint venture are not scrambling their business eggs. Accordingly contractual based joint ventures will be suited to short term or one-off projects.

Joint Venture Agreement

The joint venture agreement will be similar to a shareholders agreement or a partnership agreement, in that it will document the following key matters:

  • The reason for establishing the joint venture, with a list of specific outcomes;
  • The contributions that each party will make to the joint venture both at the outset and on-going, in terms of money, assets, staff, IT, technology or know-how, and any other resources;
  • The division of profits and losses; and
  • The duration of the joint venture and provisions to regulate for an early exit.

In addition to the main joint venture agreement there may be a number of additional agreements required such as the licence of intellectual property, or the assignment of goodwill.

The preparation of a joint venture agreement should be regarded as a process, undertaken in conjunction with a joint venture solicitor, as well as with tax and other specialist advisors.

Contact us

For expert joint venture advice contact us by telephone on (020) 8275 0446 or by email at enquiries@sllaw.co.uk.

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